Tax-free investing with municipal bonds

Looking to make your portfolio more tax-efficient? This specialized investment class may help.

Issued by state and local governments, municipal bonds (or munis) help fund ongoing expenses and complete capital improvements, such as sewers and toll roads. Munis may also generate interest free from federal, and often state and local, income tax. This can be an especially appealing feature in taxable accounts for certain types of investors. We’ll help you consider your options.

Muni National Short

Muni national short portfolios invest in bonds issued by state and local governments to fund public projects. The income from these bonds is generally free from federal taxes and/or from state taxes in the issuing state. To lower risk, some of these portfolios spread their assets across many states and sectors. Other portfolios buy bonds from only one state in order to get the state-tax benefit. These portfolios have durations of less than 4.5 years (or, if duration is unavailable, average maturities of less than five years).
 

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Muni National Intermediate

Muni national intermediate portfolios invest in bonds issued by various state and local governments to fund public projects. The income from these bonds is generally free from federal taxes. To lower risk, these portfolios spread their assets across many states and sectors. These portfolios have durations of 4.5 to 7.0 years (or, if duration is unavailable, average maturities of five to 12 years).
 

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Muni National Long

Muni national long portfolios invest in bonds issued by various state and local governments to fund public projects. The income from these bonds is generally free from federal taxes. To lower risk, these portfolios spread their assets across many states and sectors. These portfolios have durations of more than 7.0 years (or, if duration is unavailable, average maturities of more than 12 years).
 

Mutual Funds

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High-Yield Muni

High-yield muni portfolios typically invest at least 50% of assets in high-income municipal securities that are not rated or that are rated by a major agency such as Standard & Poor's or Moody's at the level of BBB (considered part of the high-yield universe within the municipal industry) and below.
 

Mutual Funds

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Muni Single State

Muni single-state long portfolios invest in bonds issued by state and local governments to fund public projects. The income from such bonds is generally free from federal taxes and from state taxes in the issuing state. To get the state-tax benefit, these portfolios buy bonds from only one state.
 

Mutual Funds

Fund Name / Symbol
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ETFs

Data as of ET
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Fund selection criteria: The funds displayed are not a recommendation by E*TRADE Securities or its affiliates to buy, sell, or hold any security, financial product, or instrument, nor is it an endorsement of any specific security, company, fund family, product, or service. All screens display funds within the respective category and group. All mutual fund screens exclude funds not open to new investors, exclude funds that have expense ratios greater than 2% and only include NLNTF mutual funds with initial investment minimums of $5,000 or less. All ETF screens exclude exchange traded notes and leveraged ETFs. The top performing funds, based on 3 Year total return, within the various category screens are shown in the initial display along with the all the NLNTF All-Star funds of the corresponding category. All funds in the initial display are ranked by 3 Year total return.Screener and Category descriptions sourced from Morningstar.

Morningstar categories include short, intermediate, and long. The screener criteria does not differentiate and shows all options together. Language removed from category description specifying expected target duration of short, intermediate, and long portfolios.

All funds within the respective group can be seen by clicking on the hyperlinked / button section in the phrase "X of X results," "See more Mutual Funds," or "See more ETFs."

The Morningstar RatingTM for funds is calculated for management investment company products registered under the Investment Company Act of 1940 (including mutual funds, exchange-traded funds and closed-end funds) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are analyzed as a single product category for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star.

The All-Star Funds are a quarterly list of leading funds selected by E*TRADE Capital Management, LLC. Funds selected for the All-Star Funds List are selected from the no-load mutual funds offered through E*TRADE Securities. To learn more, please visit etrade.com/allstar.

All-Star Funds typically have at least a three year track record and compare favorably against their peers based on historical return, risk, expenses, manager tenure, performance and style consistency, asset size and growth and must be 1) structured through sound investment philosophy and process, 2) implemented with acceptable level of investment risk management strategy and 3) supported by a well-balanced investment firm.

Expense ratios are provided by Morningstar and are based on information obtained from the ETFs last audited financial statement. Current expense ratios for the ETFs may be different.

Yield is a measure of the fund's income distributions, as a percentage of the fund price. Morningstar calculates this figure by summing the income distributions over the trailing 12 months and dividing that by the sum of the last month's ending NAV plus any capital gains distributed over the 12-month period.

All bonds are subject to interest rate risk, and you may lose money.

Income from municipal securities may be subject to state, local, and/or capital gains taxes, as well as the alternative minimum tax (AMT).

The municipal market is volatile and can be significantly affected by adverse tax, legislative, or political changes and the financial condition of the issuers of municipal securities. Certain securities may be subject to the AMT. Interest rate increases can cause the price of a debt security to decrease. Please consult your tax advisor regarding the impact of tax-exempt investments in your portfolio.

Bonds sold by issuers with lower credit ratings may offer higher yields than bonds issued by higher-rated or "investment-grade" issuers but are usually associated with higher risks. High-yield bonds, also known as "junk bonds," generally have a greater risk of default, which increases the risk that an issuer may be unable to pay interest and principal on the issue. In addition, high-yield bonds tend to have higher interest rate risk and liquidity risk, particularly in volatile market conditions, which makes it more difficult to sell them. Before investing in high-yield bonds, you should carefully consider and understand the associated risks.

Fluctuations in interest rates may cause investment prices to fluctuate. For example, when interest rates rise, yields on existing bonds become less attractive, causing their market values to decline.

High-yield, non-investment-grade bonds involve higher risk than those that invest in investment-grade bonds. Adverse conditions may affect the issuer's ability to pay interest and principal on these securities, and as a result they may have a higher probability of default.

Debt obligations are subject to credit risk, as they can be downgraded by rating agencies, go into default, or be affected by management action or by legislation or other government action that may reduce the issuers' ability to pay principal and interest when due.

For a definition of terms, please click on the Data Definitions link. Data definitions provided by Morningstar.

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Data provided by Morningstar, Inc.